A games industry in transition, and why Steam needs to stream

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The video game industry has been changing at a fairly rapid pace for the last few years, with the speed increasing ever since the current generation of consoles came to market. In the console space the availability of Xbox Live and PSN has made it possible to purchase games digitally and extend games you already own on disc with digitally downloaded content. For PC gamers, digital download stores are fast becoming the norm as piracy means publishers are shipping discs with horrible DRM systems that make playing offline impossible, or upgrading your graphics card undesirable as your games are rendered unplayable.

The future, up until recently, certainly looked digital, with everyone downloading their entertainment rather than buying it on a disc. Smartphones and tablets reinforced this by offering up thousands of titles that couldn’t be acquired any other way aside from downloading them. The future was set for digital downloads to become the norm. That was, until another disruptive service entered the market — games that you didn’t need to download, and better yet, that could be played on any device regardless of how powerful it was or what platform the game had originally been created for. This technology allowed a game to be streamed to your device and played remotely, with your input streamed back to a server that was actually powering the game in place of your local hardware.

So far there are two such services offering this streaming gaming experience: OnLive and Gakai. Both look set to upset the balance once more for gaming services and consumers alike. If physical media is starting to have trouble competing with digital versions, how do individual platforms compete with a service that can serve up games from any platform, to any device, for a similar price?

As these streaming services become better established and sign more deals with publishers, they will disrupt more platforms. However, the first services to be affected will undoubtedly be the digital download services offering up PC titles. The most well-established of these is Valve’s Steam, which offers up just about every major game released on the PC, and regularly holds sales to entice us gamers to purchase a huge library of titles. And yet, Steam’s future was starting to look a little shaky even before OnLive and Gakai turned up. Publishers are realizing the value of offering games direct to consumers in digital form, and some have already opened up competing download stores. The best example of this is EA’s Origin service, which insists you have a login for certain high-profile games released under EA’s label, e.g. Battlefield 3. These — often major — games are also not available through Steam because of what EA describes as unworkable licensing terms.

EA may have jumped first by launching Origin, but other big names publishers will surely follow. Gamers could be faced with having to keep several digital store accounts active just to play the games they want. This will certainly put the squeeze on independent stores like Steam, but also less dominant services. Add to that the growing library of games OnLive and Gakai will offer, and the outlook doesn’t seem bright for digital download stores.

However, of all the independent digital games stores out there, Valve is the one most likely to take a stand and stop Steam fading into the background. It has taken years to establish Steam as the number one digital games store, and Valve certainly has the money to react to a growing threat. While alternative stores setup by publishers may block some content, there will always be developers and publishers willing to sign up to be distributed through Steam. There’s also that other major advantage Steam has in the form of Half-Life, CounterStrike, Left 4 Dead, and Team Fortress. All very popular titles, and all owned by parent company Valve.

The major threat to Steam in the long-term comes from digital streaming services. Valve could react to such competition by developing its own streaming game service, but that’s no small task. As well as figuring out the tech, Valve would have to make major investments in backend hardware allowing hundreds of games to be streamed to players around the world. Would it be willing to make such an investment while existing cloud services gain in popularity and user numbers?

There is an alternative though, and it could rocket Steam to the top of the digital gaming services like a bullet.

Both OnLive and Gaikai are backed by a number of investors independent of the gaming industry. Valve could approach either service in a bid to take a stake and integrate cloud streaming into Steam. This could happen with Valve being just a customer, but I doubt the company would settle for that seeing as how important Steam is as a service to them. With Valve becoming a (significant) shareholder in either OnLive or Gaikai, it would secure Steam’s future in terms of offering streaming games, help keep both services independent, as well as forming a good investment for Valve going forward. The other advantage this offers is a workaround for the issue of how to offer titles publishers don’t want on Steam directly, as they could be offered as streaming-only titles.

There is no easy answer to the threat of streaming from OnLive and Gaikai. Competing directly with them requires huge investment and development commitments, and then there’s sure to be a few patent lawsuits appearing relating to cloud gaming technology. Partnerships may be the better option, but then it does remove some control away from a service like Steam.

Of course, cloud streaming games might end up not being popular, but the promise of developing a game for PC, and then streaming it to iOS, Android, Mac OS X, Linux, Windows Phone, and any other platforms they care to support, is too good of an opportunity for publishers, developers, and consumers to pass up.